To own a “bearer asset” means you’re the one holding it. This is in contrast with a “credit asset,” which implies that some third party is either holding the asset for you or otherwise acting on your behalf. You should think of this as the difference between buying groceries with cash (which you physically hold) versus buying groceries on credit (in which the bank, in a complex series of inter-bank and commercial agreements, moves some imaginary cash somewhere for you).
Why does this matter? Cash, coins, and gold, all bearer assets, existed for hundreds of years. Then we had electronic credit enter the mix¹ & consumer spending became near-frictionless, and with the swipe of a card you could spend money you either had stashed elsewhere or may not have been holding at all and just wanted to promise to pay back with an IOU. Wildly powerful.
But the world is now fully digital, and cash is annoying to carry around anyway. Are bearer assets just dead? Are we forever going to enter into complex IOU agreements, and wait for third parties to settle transactions?
Obviously, no. Crypto is, by definition, a digital bearer asset. If you hold it, you own it. “Not your keys, not your crypto” as the story goes. This idea that we can own something digitally and have it truly within our hands, not just existing in some third-party server warehouse, is both profound and empty at the same time. It’s a neat party trick, but does it actually mean anything for consumers? When would we even use a bearer asset anyway, much less a digital bearer asset?
Let’s start with the libertarian side:
- What if I’m just paranoid, don’t trust banks, and want to hold my own savings? I could store it in cash, sure, but then I can’t make any digital transactions, effectively condemning me to the stone ages.
- What if I’m concerned that my home isn’t safe, and someone could steal my physical cash at any point? I could store it in a large safe buried underground, but, again, now I can’t make any digital transactions.
And the more recently topical humanitarian side:
- What if my country is invaded, I don’t have enough inventory space to hold all my coins and bills, and I don’t have a bank because it was bombed? I could trust a middleman with an IOU that he’d give me everything back when I get to safety, but then I’m easily exploitable.
- What if my country’s currency is rapidly inflating? I could swap all of my country’s currency to a different foreign currency, but it’d still be held in my domestic banks (likely) which have their reserves denominated in the local currency, and may seize my holdings if their reserves fail.
Not everyone is a libertarian, and we don’t yet live in a lawless vagabond dystopia, but it’s hard to disagree with some real humanitarian use cases underway right now in present day global politics. Digital bearer assets are important.
I don’t have a clear prediction for what digital bearer assets mean in the future, partially because there’s an infinite number of use cases that no one has possibly had the creative space to consider yet. We don’t know what we’ve unleashed with our primordial coinage of the future, but digital bearer assets are novel, important, and definitely here to stay.
¹For an extra fun discussion on debt, see David Graeber’s Google talk. Credit’s been used a lot longer than you might expect!